Sunday, March 11, 2018
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He's the president of a company of tech analysts. Bloomberg is expected to publish a corresponding article by Jason Forbes. ;-) Well, here's a nice anti-Bitcoin story at Bloomberg by Paul Ford (from Friday).

Bloomberg (that one at Forbes) argues that the cryptocurrencies with the public blockchain – Ripple is the only possible counterexample of a semi-permissioned blockchain – should be banned for one reason he focused on: every user funds anonymous criminals. In particular, he's concerned with the criminals who run illicit cryptomining on computers that they attack.

Studies have shown that the amount of the Bitcoin that is held by criminals; and the percentage of the transactions that serve criminals is comparable to 50%. But even though the percentage of the criminals is surely higher among the users of the Bitcoin than among the users of the U.S. dollars, it's not "qualitatively new" that you're sharing a currency with criminals.

However, in the case of the mining, the situation is worse. When you pay a transaction fee, you're paying it to a miner whom you don't necessarily know. It's really a defining feature of the Bitcoin-like cryptocurrencies – those based on proof-of-work and the permissionless blockchain – that you don't know your miner. Everyone can anonymously join the community of miners. Well, almost all the Bitcoin mining is done by the large mining pools but they divide most of the money to members of these mining pools and those can be unknown.

Much of the capacity of the mining pools may be done by computers that have been attacked by illicit cryptomining malware. Every year, 6*24*365*12.5=657,000 new Bitcoins are mined. At the current price $8,800 per Bitcoin, that's almost $6 billion for the newly mined Bitcoins. On top of that, the miners get extra fees for the transactions. Right now, it's less than 10% of the newly mined Bitcoins (compare the rewards with BTC 12.5) because the number of transactions has cooled dramatically in recent months and the mempool is almost empty. (And the web searching for the Bitcoin dropped by 80% since December.) But the fever may return and the transaction fees may be up to 30% of the rewards, as they were a few months ago.

At those rates, the miners were getting one or two billion dollars per year from transaction fees. A significant fraction of that may be fees going to criminals. Even if you don't know anybody who uses the Bitcoin for drug trafficking or sales of slaves, you know a class of criminals who clearly use the Bitcoin: the hackers who spread the illicit cryptomining malware.

So when you pay for a Bitcoin transaction – it's at most nickels now but it was up to $50 just three months ago – a significant fraction of the transaction fee, perhaps 50%, goes to criminals such as the rings of hackers that spread the malware (they may still connect the attacked computers to the mining pools). Maybe you don't want to know that you're explicitly supporting criminals but it's unquestionable that a not quite negligible part of the transaction fee is supporting criminals. Three months ago, you could have paid $25 to criminals per every transaction. This isn't really a negligible amount. You can buy a nontrivial amount of drugs for that, too, and you would be in trouble.

It's being assumed that it's not a legal problem for the users of the public blockchain cryptocurrencies right now. They don't know their criminals so it's just like if the criminals didn't exist. They don't think about any moral dimensions of that behavior, either. Well, I beg to differ. I agree with Jason Bloomberg that if you don't know your clients – if you violate the "KYC" (Know Your Consumer) rule – and the clients end up being criminals, you are cooperating with crime. If it were a "shocking surprise" that your clients are criminal, you could perhaps justify this coincidental cooperation. But that's not the case of the Bitcoin where everyone knows that this is going on.

The Bitcoin miners – or the miners working on any currency with a public blockchain – are collectively an enterprise whose revenues are criminal to a significant percentage, and that's another good reason why these Bitcoin-like cryptocurrencies should be banned. You know, the Italian mafia is also doing some "legitimate business". It's plausible that the percentage of its "legally kosher business" is higher in the case of the Italian mafia than in the case of the Bitcoin miners. A critic of Jason Bloomberg claims that the illicit cryptomining is no different from other types of malware so there is nothing to be seen here. Well, there is a difference: the police is going after the neck of all those who fund other types of malware but so far, it fails to go after the necks of the sponsors of the illicit cryptomining hackers, namely the necks of the cryptocurrency users. And that should arguably change.

I've referred to a similar characteristic of the public blockchain philosophy – the responsibility is "distributed". In general, I think it's simply wrong to distribute or dilute responsibility. It's a communist idea to share things, like responsibility. Bloomberg has made the same general point while talking about criminals.